DCAA AUDIT SUPPORT SERVICES
EXPERT GUIDANCE FOR GOVERNMENT CONTRACTORS AND GRANTEES
Preparing for and navigating a DCAA audit can be one of the most stressful and high-stakes challenges a government contractor or grantee faces. Whether you are dealing with a Pre-award review, Accounting System Audit, Incurred Cost Audit (ICE), Floor Check, or a Pricing Proposal audit, understanding what auditors will focus on — and being prepared — can mean the difference between passing with minimal disruption or facing cost penalties, delayed reimbursements, questioned costs, contract termination risk, and damaged contract performance evaluations.
At ReliAscent®, our DCAA audit support services are built around helping small businesses understand each audit type, prepare effectively, and work through the audit with confidence. We guide you before, during, and after the audit to protect your cash flow, compliance standing, and business reputation.
WHAT IS A DCAA AUDIT?
A DCAA audit is an examination of your accounting and related systems to ensure compliance with the Federal Acquisition Regulation (FAR), DCAA Contract Audit Manual (DCAM), and other applicable federal mandates. The DCAA can audit anything from your accounting system structure to your submitted costs, pricing proposals, and timekeeping practices — and they do so to ensure federal funds are spent appropriately.
DCAA audits are not rare: they are common whenever cost-reimbursable contracts are involved — and they can also occur on Time & Material and labor-hour contracts if the government perceives audit risk is high.
WHAT ARE THE MOST COMMON DCAA AUDITS?
The list below details the most common audit types government contractors will face. Note that these will require DCAA audit support services if your business has not already implemented and properly maintained a DCAA compliant accounting system:
PRE-AWARD AUDIT
The DCAA's Pre-award Audit is perhaps the most common or familiar audit to government contractors. This audit assesses whether your accounting system meets FAR and DCAA requirements for an “acceptable accounting system.” Contractors are typically asked to complete Standard Form SF-1408 as part of the review. DCAA does not audit specific transactions in this phase — the goal is a systems determination before contract award. In the case of a Pre-award audit, DCAA reports their findings to the Contracting Officer (CO), and if the contractor passes, the CO can release the contract.
PRICING PROPOSAL AUDIT
Your Contracting Officer is responsible for ensuring the government and taxpayers that the pricing on a proposed contract is fair and reasonable (therefore, they may request an audit of your pricing). If the contract is large enough to exceed the $2 Million threshold set for in the Truth In Negotiations Act (TINA), the contractor is required to submit pricing information along with the proposal. However, in other instances the CO may request this information and a DCAA audit. DCAA may also request additional information supporting your proposal pricing (typically referred to as Basis of Estimate (BOE)).
Occasionally, the Government contracting officer can even request that the DCAA review an SBIR proposal to verify that proposed costs are reasonable and allocable. This review, or audit, is often conducted as an on-site visit by a DCAA auditor who asks for information (such as indirect rates backup). These audits can directly affect your final award amount.
Read our blog to learn more about certified cost and pricing data and TINA, here.
ACCOUNTING SYSTEM AUDIT (POST-AWARD ACCOUNTING SYSTEM AUDIT)
After the pre-award audit is passed and a contract is awarded, the DCAA will perform an Accounting System Audit (or Post-Award Audit) at some point during, or even after, the period of performance. This audit can occur at any time, but typically happens within the first 6-12 months (though the DCAA may wait years to perform the audit). This is a very detailed audit of your accounting system and far more complex and intensive than a Pre-award audit. This type of audit is designed to be a "deeper dive" into your system and processes and will cover things like: vouchers, timesheets, labor distributions, indirect rate calculations, and job cost reporting, to verify the accounting system is following all of the regulations required by DCAA. An SBIR/STTR Ph II (cost type contract) awardee will almost always have one of these audits during the performance of the Phase II.
DCAA INCURRED COST AUDIT (DCAA ICE AUDIT)
Your Incurred Cost Proposal or Report, also known as the DCAA Incurred Cost Electronically (ICE) Submission, is the financial representation of both your direct and indirect costs of work that was performed during your FY. The ICP/ICE is used to ensure that your claimed actual costs and billed costs reconcile (simply stated: make sure you did not overbill the government, and if so, how much you will need to repay them). The DCAA uses the ICE to ensure that contractors are following the requirements set forth in the FAR, and that their accounting system is GAAP compliant.
Incurred Cost Reports are required to be submitted to the government 6 months after the end of the contractor's fiscal year for cost reimbursable type contracts.
These audits are among the most complex and carry high risk; audit findings can lead to significant debt determinations and repayments to the government.
DCAA FLOOR CHECK AUDIT
The DCAA's Floor Check audit is typically an unannounced visit to your facility by the DCAA. The purpose of the audit is to verify the existence of your employees and to determine whether adequate timekeeping controls and practices are in place and functioning properly. Essentially, the DCAA is ensuring that employees are at work, performing the assigned job classification, and that the time (labor) is charged to the proper cost objective. They will ask to visit the workstation of several employees, picked at random, to verify they are using labor recording and timesheets properly. The audit will also verify that the contractor has procedures covering labor recording, the procedures are familiar to the employee, and that employees are at their work station when performing work.
Failing a Floor Check Audit typically comes down to:
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Lacking a written, DCAA compliant, timekeeping policy and procedure, and
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Finding violations or errors in your standard training procedures for employees regarding time tracking and attendance, and how these things are documented.
WHY AUDIT PREPARATION MATTERS
Even a more basic DCAA audit can escalate into something more extensive if compliance gaps are identified. Common negative consequences of inadequate audit preparation (and inadequate accounting & timekeeping systems, and policies & procedures in general) include:
- Delayed or withheld progress payments
- Questioned costs and financial liabilities
- Audit findings that can affect future contract awards
- Termination for default or cure notices
- Damage to your contractor performance assessment report (CPAR)
- Significant out-of-pocket costs due to penalties or repayments
Being proactive — not reactive — is critical.
